Kyrgyz Republic Economic Governance DPO

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This program document proposes a Development Policy Operation (DPO) in support of the Kyrgyz Government’s reforms to strengthen macro‐fiscal foundations for growth, enhance transparency and anti‐corruption in the public sector and boost private sector competitiveness. The operation is in the amount of US$24 million equivalent, split equally between IDA credit and IDA grant. The DPO program squarely backs the government priorities as expressed in its medium‐term plan ‘Unity, Trust, Creation’, 2018‐2022, unveiled in 2018. The proposed program builds on the previous DPO series, which also aimed to enhance public sector governance and improve the business environment, while adding a new focus on fiscal management, particularly in light of growing macroeconomic imbalances, and the manifest need for coherent macroeconomic policy planning to support medium‐term objectives. The operation will support the country’s endeavors to reduce its vulnerability to climate change risks and natural disasters through expanded internet connectivity, which is a critical foundation for effective mitigation. Thus, it is fully in line with past and planned Bank‐Government strategic objectives in the country, as well as with corporate priorities. The Kyrgyz authorities recognize these challenges and are committed to addressing structural impediments to more sustainable and inclusive growth. The new government, ushered‐in following the elections of October 2017, has adopted a development roadmap for the medium‐term that accords high priority to addressing governance issues in a wide range of areas (from economic management to public services delivery), while also emphasizing the need for coordinated initiatives to leverage growth opportunities in key sectors of the economy, encourage digitalization of the economy, and promote spatially balanced economic development. The plan serves as a vehicle to implement the country’s long-term development vision embodied in Vision 2040. Considering heightened fiscal imbalances, including as a result of pre‐electoral slippages and adverse exogenous developments, the new government has also committed to strengthening fiscal management, an ambition that this operation supports. Building on the government’s reform efforts and strategic priorities, the DPO has three pillars, covering reforms to strengthen macro‐fiscal foundations for growth, enhance transparency and anti‐corruption in the public sector and boost private sector competitiveness. Pillar one aims to help the authorities strengthen fiscal discipline, through measures to increase revenues in the short run, but also to anchor fiscal policy more sustainably in the context of a sound fiscal rule. Pillar two seeks to enhance transparency and anti‐corruption in the public sector, through reforms to strengthen public sector integrity, and improve the value for money of public procurement. Pillar three aims to boost private sector competitiveness, through measures to facilitate trade, improve the business environment, and promote greater digital connectivity. Stronger fiscal management and governance are essential preconditions for private investment and firm growth, which the recently completed Systematic Country Diagnostic (SCD) identified as the single most important driver of progress on the Twin Goals going forward.